Launching a successful startup is both exciting and exhausting. Once the business starts doing well, you face a new hurdle; competitor!
Competitors are out to get you; they want your customers and want you to fail. Therefore, they will do whatever it takes, some looking for legal avenues, while others don’t mind achieving their goals illegally.
Killing the competition is a common feature in the business world. It usually occurs when large companies try to suppress small new entrants who threaten their business.
So, How Does Your Small Business Overcome the Threat of Large Companies and Grow?
In this article, we look at three companies that found a side door into their industries. We will examine the startup lessons from rxbar, 5-hour energy, and Microsoft.
1. Microsoft Group
Microsoft was a big name in the industry in 1997 when personal computer sales approached 100 million units yearly. That summer, Microsoft group vice president Jeff Raikes wrote a letter to Warren Buffet to convince him to invest in the company. In the letter, the vice president compared his company to Buffet’s See’s Candies, which had dominated the market.
He went on to state how their revolutionary product, the Windows operating system, had created a “toll bridge” that each personal computer manufacturer needed for them to sell their computers to customers. Furthermore, the product created a huge gap between Microsoft and their competitors. They gained a 90% market share thanks to productivity software applications (Word, Excel, PowerPoint, Access, etc.) that were built on top of Windows. This also allowed Microsoft to dictate the prices for the applications software and licensing fees they charged computer manufacturers for the operating system.
Startup Lessons Learned from Microsoft
Some of the startup lessons you can pick from the case of Microsoft is overcoming the three barriers of entry: Toll Bridge, moat, and pricing discretion.
In the email to Warren Buffet, Raikes expressed some things and implied the rest. Buffet knew that the wider the gap between Microsoft and the competitors(moat), the longer the toll bridge, and the more advantage Microsoft had in setting prices to grow advantageously.
They could lower licensing fees to have their browser and applications on as many PCS as possible and use pricing discounts to punish PC manufacturers who didn’t play alongside their rules or offer low pricing to kill their competitors.
Lotus, Novell and Corel. Have you seen them lately? That is because Microsoft’s low pricing drove them off the market.
The barriers to entry are both a blessing and a curse for startups. You can use them to enter a market and grow, or big organizations can use them to deter you from your dreams of running a business.
Peter Rahal(one of the founders of RXBar) wanted to go into the protein bar business but knew that the market was already saturated with different brands. He and his partner Jared Smith came to completely accept the fact when they visited Whole Foods for an initial fact-finding tour.
They realized that their situation was different from Gary Erickson, who in the early 1990s developed Clif Bar, which competed against PowerBar. Unlike Gary, who went up against one brand, they were to go against a myriad of brands with several flavors. It meant they would have a harder time pitching their product to a Whole Foods regional buyer.
So what did Peter do?
Peter decided to focus his attention on a product for CrossFit and Paleo consumers. That meant a bar with no grains, no dairy, no peas or bean protein, and no sugar. It was the first of its kind.
Furthermore, they decided to take their business online; they will create a website and sell directly to consumers. In his own words, “Consumers would be coming directly to us”.
Lessons Learned from RXBar
RXBar identified and exploited something that the large and existing competitors could not see. It was unique, and the owners sold directly to consumers. It allowed them to establish themselves, stand out, and grow before the competition could notice them and try to push them out. Some of the competitors included General mills and Nestle.
3. 5-hour Energy Drink
In 2003, Manoj Bhargava was looking for inventions he could buy or invest in for his retirement. He had earlier taken a plastic business and made it profitable; the new venture was to create a residual income stream for him after retirement.
That year he went to a natural products show outside Los Angeles, where he came across a sixteen-ounce energy drink with long-lasting effects he had never experienced. He quickly liked the product and wanted to have it. However, he was quickly cut short as the “learned” creators refused to sell or license their formula to an insignificant business person like him.
Manoj decided to take matters into his hand and create his version of the drink. He and his scientists hit the lab intending to create an energy drink that could rival what he had drunk. In a few months, he had created a comparable drink.
But that was just one part of the hurdle, Actually the easier part. How was he going to get the drink onto stores? He had to compete for shelf space with huge brands such as Red Bull and Monster energy.
Fighting the huge companies would surely fail. No store manager, even those who wanted, would switch the big brands from their shelves for an unknown brand.
Manoj went against the norm of sixteen-ounce bottles for the smaller two-ounce bottles. He also decided to sell the product as a vitamin and not an energy drink. So he approached the largest vitamin store GNC, which sold it in a thousand stores.
Startup Lessons learned for 5-hour Energy Drink
Manoj didn’t face his competitors directly. Instead, he created the same product but branded it differently. Since it was not an energy drink or vitamin, it was not competing against big names like Red Bull and Monster.
Secondly, the small packaging meant that store owners didn’t have to worry about clearing shelves for the 5-hour energy drink. It also meant store owners could place them right next to the counters.
Thirdly, using GNC meant that they faced lesser competition than they would in other stores.
The results were the 5-hour energy drink having a 93% share of the energy shot business. Big competitors like Coca-Cola, Pepsico, Red Bull, and Monstre flooded the energy with their versions but failed.
Is Startup Realistic?
Yes. A startup is realistic. Anyone can start and successfully run a startup business. All you have to do is to go through the side door. Then, look for avenues where you are least going to attract attention to ensure that you can grow without stiff competition from the big players.
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